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Deficits must be reduced

| Saturday, Jan. 26, 2013, 9:01 p.m.

It appears likely that the anticipated Congressional battle over the nation's debt ceiling will be pushed back to mid-May.

When the battle lines reform in the spring, however, the core problem will remain the same: so-called “entitlement” programs such as Medicaid, Medicare, Social Security and more. This is an issue of extreme political sensitivity. Few politicians dare even to offer specific suggestions about restructuring these programs let alone reduce them.

The late Herbert Stein, who preceded Alan Greenspan as chairman of the Council of Economic Advisers to presidents Richard Nixon and Gerald Ford, developed what is known as Herbert Stein's Law: “If something cannot go on forever, it will stop.”

The current explosion of the government deficits clearly is unsustainable. It cannot go on forever. If financial markets stop the deficits by shunning the purchase of Treasury securities, it likely will spell a serious downgrade of the nation's credit rating, high interest rates and great suffering. If, on the other hand, Congress reduces the deficits, the impact likely will be less destructive.

Simon Johnson, a Massachusetts Institute of Technology professor in entrepreneurship, told members of the House Ways and Means Committee that it is a “big mistake” to continue to have extended confrontation over the debt limit because of the uncertainty it creates for consumers, the private business sector and the European economy.

There is probably private Congressional agreement among many in both parties that the exponential increases in the deficits must stop. The crucial question in resolving the deep political divide is how.

Entitlement programs are so named because people feel that their financial or other contributions render them “entitled” by right to receive the payments. Although that sounds fair, there are three big problems.

The first is the increasing cost of living, especially in health care. Many costly surgical operations, such as hip replacements, did not exist when Medicare was established.

Second, demographics have changed dramatically. When Social Security and other entitlements were conceived, the average life span of Americans was much lower. Today, Americans live longer in retirement. The 2010 Census report shows seniors 65 and older are the fastest growing sector of the American population and, for the first time, form the largest portion of the population at 40.3 million. Understandably, senior citizens tend to require the most costly health care support.

Third, many retirees believe they are “entitled” to receive a return of the payments they have made into Social Security and Medicare during their working lives. However, because of protracted retirement and higher costs, retirees tend to receive far more in benefits than they contributed. With falling full-time employment, a growing number of workers are making minimal contributions.

Entitlements have to be restructured, but political gridlock continues to grip Washington.

House Speaker John Boehner's proposal to tie the debt limit extension to a pledge to withhold the pay of all members of Congress until they have agreed to a balanced budget may or may not be legal. But the idea could spark voter support for action.

John Browne, a former member of Britain's Parliament, writes about financial and economic issues for Total Trib Media. Contact him at johnbrowne70@yahoo.com.

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